Menomonee Falls-based Actuant Corp. might have had a strong third quarter if it weren’t for a sharp downturn in oil and gas markets that hurt its energy segment.
The reality, though, is sales were down 18 percent in the energy segment, which barely turned an operating profit.
Actuant, a provider of hydraulic tools and motion control systems, reported a 3.2 percent decline in revenue during the quarter to $295.4 million. While net income improved from $21.2 million to $22.5 million and earnings were up a penny to 37 cents per diluted share, the company said adjusted earnings, which excluded restructuring costs and a one-time tax benefit, declined from 40 to 32 cents per diluted share.
The company lowered its adjusted earnings guidance last week by 20 percent, citing issues in the company’s energy markets.
The other two Actuant segments had solid quarters. Industrial revenue was up 4.9 percent to $100.5 million and engineered solutions increased 2.9 percent to $111.4 million, ahead of company expectations.
But the price of oil had two sharp declines during the quarter and ended down $5.51 per barrel from the start to end at $48.32. It has since lost another $4.73 during the first three weeks of June.
Weakness in oil and gas markets had widespread impacts on Wisconsin manufacturers last year, including Actuant. Transmission maker Twin Disc went several quarters without new orders and Harley-Davidson said at one point that weakness in oil dependent areas decreased sales by more than 500 motorcycles in a single quarter.
Actuant announced Wednesday it would be initiating a restructuring program in its energy segment aimed at saving $3 million to $4 million with a $2 million cost.
“Rest assured, we are going to take every action as early as possible,” said Randy Baker, Actuant president chief executive officer, adding the company is looking at options to limit its exposure to well-development and exploration efforts along with improving its operations.
[caption id="attachment_134253" align="alignright" width="366"] Randal Baker, Actuant chief executive officer[/caption]
Baker said there is a “distinct oversupply” even with efforts to cut production by OPEC. He said there has been a lot volatility in the Middle East and also in North America. In some cases customers are cancelling work just as it is supposed to begin.
“We had equipment loaded, ready to go to the job site and the phone call came,” Baker said. “Until we put boots on the ground, we’re not counting on the revenue.
Rick Dillon, Actuant chief financial officer, said customers have become even more constrained in their use of cash, moving from cutting capital expenditure budgets to also delaying maintenance work.
“Unfortunately, we don’t see a catalyst for improvement in Q4,” Dillon said.
Maintenance work will eventually have to take place, which could lead to pent up demand at some point, Baker said.
“The question is when is that going to happen and we just don’t want to put a stake in the ground,” he said.
But analysts questioned why the company was doing a restructuring program that would generate $4 million in savings when oil prices have been down since the start of 2015.
“This is the first pass at this,” Baker said, noting the business making up two-thirds of the energy segment is still profitable and the company has invested a lot of money in its training programs.
“What we don’t want to do is damage it going forward,” he said. “It is a very fine line that we’re walking.”
Still, the company projected revenue in its energy segment would be done 21 to 23 percent in the fourth quarter.